In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

As I explained, there is no way they can get the necessary two-thirds support to approve an amendment, so why trade a meaningless and symbolic vote on a BBA for meaningful and real approval of more borrowing authority for Obama? My analogy yesterday was that this was like trading an all-star baseball player for a utility infielder in the minor leagues.

I did acknowledge that forcing a vote on a BBA was a worthwhile endeavor, but said that the GOP has that power anyhow, so why trade away something valuable to get something you already can get for free?

Little did I realize that Republicans already did force a vote on the balanced budget amendment. Less than one month ago, on March 2, Senator Lee of Utah got a vote on a “Sense of the Senate” resolution in favor of a balanced budget amendment. Senator Lee’s resolution received 58 votes, which is nice, but an actual amendment would need a two-thirds supermajority, so this test vote demonstrated that there is no way to approve an amendment this year.

But I’m mystified, flabbergasted, and stunned that Republicans apparently are willing to give Obama a bigger debt limit in exchange for something they already got.

Returning to our baseball analogy, this would be like the Yankees giving Derek Jeter to the Red Sox in exchange for a player they already have, such as Alex Rodriguez. I imagine New York sportswriters would be dumbfounded by such stupidity and would rip the team’s management to shreds. So that gives you an idea of how I feel about what’s happening in Washington.

As I noted in my earlier post, I’ll soon write about the fiscal reforms fiscal conservatives should demand in exchange for a higher debt limit.

House Republicans engineered a continuing resolution for fiscal 2011 that would trim $61 billion in “regular” discretionary budget authority versus fiscal 2010. The Obama administration and the Democratic majority in the Senate balked at the cuts, and a two-week continuing resolution will be passed in order to avoid a “government shutdown” and give the sides more time to reach an agreement.

Based on the Congressional Budget Office’s score of the continuing resolution containing $61 billion in funding cuts, and the CBO’s recent budget projections, both discretionary and total federal outlays (actual spending) would still be higher in fiscal 2011 versus fiscal 2010.

Keep these charts in mind the next time you hear or read that the Republicans’ supposedly “major spending cuts” will lead to reduced economic growth and hundreds of thousands of jobs lost.

Zandi, an architect of the 2009 stimulus package who has advised both political parties, predicts that the GOP package would reduce economic growth by 0.5 percentage points this year, and by 0.2 percentage points in 2012, resulting in 700,000 fewer jobs by the end of next year. His report comes on the heels of a similar analysis last week by the investment bank Goldman Sachs, which predicted that the Republican spending cuts would cause even greater damage to the economy, slowing growth by as much as 2 percentage points in the second and third quarters of this year.

Republicans understandably wanted to discredit this analysis. But rather than expose Zandi’s laughably inaccurate track record, they asked the Chairman of the Federal Reserve, Ben Bernanke, for his assessment. But this is like asking Alex Rodriguez to comment on Derek Jeter’s prediction that the Yankees will win the World Series.

Not surprisingly, as reported by McClatchy, Bernanke endorsed the notion that spending cuts (actually, just tiny reductions in planned increases) would be “contractionary.”

Bernanke was asked repeatedly about GOP proposals to trim anywhere from $60 billion to $100 billion in government spending during the current fiscal year, which ends Sept. 30. These cuts would do little to bring down long-term budget deficits but would slow the economic recovery, he cautioned. “That would be ‘contractionary’ to some extent,” Bernanke said, projecting that “several tenths” of a percentage point would be shaved off of growth, and it would mean fewer jobs. …While Democrats got what they wanted out of Bernanke with that answer, he frowned on some of their projections that the spending cuts that are being debated could reduce growth by a full 2 percentage points.

But while Bernanke is not a fool, I can’t say the same thing about Republicans. Bernanke has made clear that he either believes in the perpetual-motion machine of Keynesianism, or he’s willing to endorse Keynesian policies to curry favor with the White House. Republicans should be exposing these flaws, not treating Bernanke likes he’s some sort of Oracle.

A large number of Democrats voted with Republicans in the House yesterday to pass a two-week spending bill that includes $4 billion in cuts compared to what Obama requested. This is a modest victory for the GOP since they can truthfully claim that they are on target to impose the equivalent of $100 billion of cuts over a full fiscal year.

The deal, which eliminates dozens of earmarks and a handful of little-known programs that President Obama has identified as unnecessary, sailed through the House on a 335 to 91 vote. Senate Majority Leader Harry M. Reid (D-Nev.), who initially resisted including any cuts in a short-term funding extension, predicted that it will pass that chamber as early as Wednesday.

Some people correctly note that a $4 billion cut is trivial since government spending has ballooned by $2 trillion during the Bush-Obama spending binge — especially since at least some of the supposed spending cut is based on the dishonest Washington practice of measuring “cuts” on the basis of how much Obama wanted to spend rather than nominal changes from one year to the next. Nonetheless, it is a very positive development that the conversation has shifted from “how much should spending be increased?” to “how much should spending be cut?”

But GOPers ultimately did not get everything they wanted that year, in part because Clinton and the Democrats were able to regroup when the government was temporarily re-opened for a three-week period. Democrats today presumably view the current two-week agreement as a similar opportunity to make a short-term tactical retreat in hopes of winning bigger battles in the future (not just the fight over FY2011 spending levels, but also the upcoming FY2012 budget resolution debate and the debt limit conflict in June or July).

In other words, Republicans should be very careful about having their energy dissipated by a series of diversionary battles over short-run spending bills. At the very least, they need to insist that all such bills include pro-rated spending cuts to fulfill their promise of reducing Obama’s request by $100 billion.

At some point, perhaps when the two-week agreement expires, Democrats will balk at that tiny level of fiscal discipline. And if Republicans also hold firm, this means a government shutdown. Obama and Reid will imply this is somehow the fault of the GOP, but the Washington Post story suggests that recycling the 1995 strategy may not be very successful for the left:

Republicans bore the brunt of the blame that time. A Washington Post poll released this week suggested that this time, voters would apportion fault about equally to both parties. What has changed? The state of the economy is far more precarious than it was in the mid-1990s, the deficit is 10 times as large, and the public’s confidence in elected officials is even lower.

…But if the politics of a shutdown are in many ways more treacherous than they were in 1995, the actual effects of one would probably be less disruptive. Indeed, so many things have now been declared essential services that the government might “shut down” without most Americans noticing much difference. As happened in 1995, air traffic controllers would still watch the skies. And a wider swath of military, diplomatic and national security personnel would stay on the job to deal with concerns in a post-9/11 world.

…Therein lies the paradox under all the talk of a shutdown. Privately, some Democrats say they fear that a closure that barely affects the daily lives of most Americans could bolster conservatives’ argument that much of what the government does is unnecessary.

The final sentence of this excerpt is key. Would anybody (other than interest groups with snouts in federal trough) notice or care if the Department of Housing and Urban Development was shut down? Is anybody going to lose sleep if the Department of Energy is in hibernation?

In other words, a “government shutdown” would reveal that most of the “non-essential” parts of government are not necessary in the short run or the long run.

This is why Republicans, if they are reasonably astute, hold the upper hand in the current negotiations. They should speak softly and sound reasonable, but carry the big stick of a shutdown in order to ensure that the spending cut target for FY2011 spending is not eroded. And if they prevail, that will have a very positive carryover effect on the looming fights on the FY2012 budget resolution as well as the debt limit.

One final comment about the Washington Post report. The story asserts that Clinton had fiscal credibility because he imposed a tax increase in 1993. But as I have already explained, that tax increase was a miserable failure and even Clinton’s own OMB forecast, made 18 months after the tax increase was adopted, showed permanent deficits of more than $200 billion.

When it comes to reining in federal spending, House Republicans and the president have one idea in common: freezing nondefense discretionary spending. That category accounts for about 18 percent of total spending, so let’s see how such a freeze would affect the overall budget.

Today the Congressional Budget Office released updated budget figures and baseline projections of federal spending through fiscal 2021. Projecting the budgetary future is obviously an inexact science, and the CBO’s baseline reflects unrealistic assumptions. However, it does allow us to get an idea of the impact of a nondefense discretionary freeze on total federal spending.

Three proposals have been put forward:

In his State of the Union address, President Obama proposed freezing nondefense discretionary spending for five years, beginning in fiscal 2012, at fiscal 2010 levels.

Ever since the release of its “Pledge to America,” the House Republican leadership has been talking about returning spending to fiscal 2008 levels. They apparently have non-security discretionary spending in mind, which is an even smaller category than nondefense discretionary. It’s not clear if they intend to freeze it at the new lower level.

Using the CBO’s latest figures, I calculated baseline spending from fiscal 2012-2021 under ten year freezes in nondefense discretionary spending at fiscal 2006, 2008, and 2010 levels:

Note: To make an apples-to-apples comparison, I extended the proposed Obama freeze at fiscal 2010 levels from five years to ten years, and I assumed a ten year freeze at fiscal 2008 levels for the House Republicans. Also, projected annual interest payments on the debt are excluded. Therefore, the chart refers to “baseline program spending,” which is the sum of nondefense discretionary, defense, and entitlement spending.

The chart makes it excruciatingly clear that freezing nondefense discretionary spending at the levels specified or implied by Republicans and Democrats is only a start toward needed reforms in the federal budget. Congress also needs to cut defense spending, and spending on Social Security, Medicare, Medicaid, and other entitlement programs.

Virginia governor Bob McDonnell must be a Bush Republican. The Washington Postreports today:

Virginia Gov. Robert F. McDonnell plans a massive spending campaign that he said would unclog state roads, award thousands more college degrees and spur job creation, part of an aggressive legislative agenda he is expected to roll out this week.

McDonnell (R) will press lawmakers to approve a series of statewide projects he said would be paid in part through Virginia’s $403 million budget surplus, $337 million in higher-than-expected tax revenue, and $192 million generated through cuts and savings….

He plans to borrow nearly $3 billion over the next three years.

That doesn’t sound like the agenda of a Reagan Republican or a Tea Party Republican. It sounds a lot like the program of George W. Bush, the biggest-spendingpresident between LBJ and, well, the president who followed Bush.

Of course, McDonnell might also be called a George Allen Republican. Allen, who served as governor of Virginia from 1994 through 1997, has a reputation as a staunch conservative. But he earned a grade of 40 on the Cato Institute’s Fiscal Policy Report Card. McDonnell seems to be headed for a similar grade.

The Washington Post reported yesterday that Republican senators were turning their back on a massive spending bill stuffed full of their own earmarks. Those earmarks, the Post noted, included quite a few to benefit Mississippi, the home state of Senators Roger Wicker and Thad Cochran:

Wicker, along with Cochran, had by then already sponsored earmarks in the spending bill that would fund an airport expansion in Tunica ($1.75 million), new riverwalk lights in Columbus ($300,000), improvements to a hiking and biking trail in Hattiesburg ($700,000) and improvements to an assortment of bridges, highways, trails, railways and streets across Mississippi.

A burgeoning Tea Party revolt against earmarks caused the bill to be withdrawn. Senate Majority Leader Harry Reid held a press conference to defend earmarks as the constitutional duty of the people’s elected representatives. (And, as many of our friends have emailed to tell us, held up a copy of the Cato pocket Constitution — 10 for $10 this Christmas season! — to make his point. Ah, well.)

But the real problem here is not earmarks. The underlying issue is not whether members of Congress or unelected bureaucrats spend the money that Congress appropriates for highways and the like. The real question is, why are local roads and bridges and hiking trails and riverwalk lights being paid for by taxpayers across the country?

If the people of Columbus, Mississippi, want new lights on their riverwalk, why are they asking the families of New Hampshire and Indiana and Oregon to pay for them? Shouldn’t they pay for their own lights, and let the people of Hattiesburg pay for their own hiking trails, and let the people of Oregon pay for any roads, bridges, or hiking trails that they value?

The fundamental problem is not earmarks. It is that the federal government is paying for clearly local and state responsibilities. Opponents of excessive spending should not stop at an earmark ban. They should insist that the federal government pay for national needs and leave state and local projects to the states and towns that want them.